Ryan,
The points you make, and the point of view you have expressed about treating the position as a whole are well taken. None of what I am about to say should be considered a rebuttal to your comments. I just think this is an extraordinary case and that stretching the boundaries of your generally sound approach may be warranted here.
It is true that I did not mention a roll-up in my previous post, but I have not closed the door on that possibility, or the possibility of selling the June12_1/2s again at a higher price if EDFY climbs, or the possibility of closing out the position if call premiums are not attractive.
My rationale for covering the June12_1/2 was that the $3 ask I hit today was an anomaly that should be taken advantage of. As you have noted, there is still a month of time left, but at the time I covered the call price was barely above intrinsic value. I really thought that with the news of the buyout and the morning top of 16_7/8 that when the market picked up as it did this afternoon we would see 16+ again, at which point the June12_1/2s would have to bring at least 3_1/2 and the June 15s would likely bring in about 2. As far as I am concerned, I covered on a dip. Yes I raised my NUT considerably, but I'm now holding all my stock against which I can write new calls to reduce my NUT again to an attractive level. I see this as being consistent with the W.I.N.S. philosophy of entering the underlying position when you have good reason to expect the stock to climb from support (e.g. lower BB and low RSI) and waiting until it reaches resistance (e.g. upper BB with high RSI) to sell the calls. In this case, something besides TA is at work, but still 15 is looking like a good bottom with 17 or even 19 near term a good possibility. Also, I would note that I covered the calls when the stock price was in the vicinity of the break-even point Herm talks about (strike price plus premium), something that had gotten away when that premium was in the 4_1/2+ realm.
I probably clouded the picture by bring the sideshow puts into consideration. It seems to me I have nothing to gain by selling them for 1/16 (in my paper trading I sell only at the bid and buy only at the ask); they do provide protection against an EDFY breakdown. As tuck has noted, the premium erosion on these is a strong indicator that EDFY will not slip very much. I will probably lose my 3/4 on these puts, but there is nothing to be done about that now except wait it out.
Without the puts in the mix, my NUT is 11_13/16. I have indeed risked a long EDFY position overnight, but with the market trending up at the close and the likely reaction to the news most people could not act on today, the probability is quite high that I can take my 3 points and probably more in the morning instead of waiting another month. If I don't see worthwhile premium in the calls, or if EDFY pops again, that is what I will do.
I absolutely agree with you that owning the stock is not the point. I will hold it only long enough to take a nice gain or improve on my my position with another call write. Taking EDFY home overnight is an aggressive position, but I'm comfortable with the risk/reward ratio.
As an afterthought for those of you interested in the daytrader mentality that creeps out now and then, here's something that I think applies to trading in general. Most successful daytraders ascribe to a theory that says it is time to exit a position whenever you find that you would not enter the position given the current conditions, regardless of whether you are up or down. From this point of view the question becomes: Knowing what we know from the news and the recent market action, would we buy EDFY now for 15 and write the June12_1/2 calls for 3? I would not. Buying EDFY for 15 and writing the June15 calls for 1_1/2 or more is a distinct maybe. We shall see what tomorrow brings.
Dan
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